The size of your bank reveals a lot more than you might think (part I)

 

Banks get a lot of press for being big. Some is seemingly a positive. Some, not so much. And the good of being small? Is there any value to a bank that is small? Read on.

 
It’s not always clear, the importance of size.

It’s not always clear, the importance of size.

Banks get a lot of press for being big.

Some is seemingly a positive: big network of ATMs; big network of bank branches.

Some, not so much: big scandal; big fine; too-big-to-fail.

Whatever the big attribute, if the popular adages ring true (all press is good press and bigger is better), big banks are winning in being top of mind when most people think about banks.

But here’s what doesn’t get as much press: you have a big selection of banks to choose from, many more than you may have ever considered, and there’s a big correlation between the size of a bank and how it uses your money.

The biggest banks in the US (those with more than $1 trillion in assets) put an average of $31 of every $100 in the bank into communities as community investments*, mostly in the form of loans for business, housing, construction, farms, and public works.

And when it comes to smaller banks?

The banks with less than $50 billion in the bank -- 99% of banks in the country --  put an average of $71 of every $100 in the bank into communities as community investments. That’s double the average of the biggest banks.

This means that if Small Bank A and Big Bank B are both working with $10 million in the bank, Small Bank A invests $4 million more into communities than Big Bank B. That’s 40 small business loans of $100,000 each.

Imagine you’re walking down a street where 40 storefronts each received $100K in working capital as a loan, versus another street in which those loans weren’t made.

Which street would you rather stroll on a Saturday? Close to which street would you prefer to own a home? If you like to see storefronts occupied and your property value increasing, we assume you’d vote for the street where the small business loans were made.

Here’s a view of the community investing focus of the bank industry, divided out by bank size.

Average number of dollars that banks of different sizes invest in communities, for every $100 in the bank

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

Dollar for dollar, banks with less than $50 billion in total assets — again, 99% of all banks — put more financing into communities than the 45 or so banks with more than $50 billion in total assets.

Even the smallest banks in the country -- those with less than $250 million in total assets — put more money, dollar for dollar, into communities than banks more than 200 times their size.

Another way to look at this is to consider the 100 individual banks in the US that put more of their total money into community financing than all the rest.  

These banks invest $92 or more of every $100 in their banks into communities. We’ve  charted these banks by bank size, below.

The 100 banks that put the most of their money into community financing, grouped by bank size. Chart shows the percentage of banks in each asset class.

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

None of the top performing community-investing banks have more than $50B in assets.  

How about banks that focus on financing important modern issues, like racial equity?

Banks certified for financing racial equity in the US, grouped by bank size. Chart shows the percentage of banks in each asset class.

Data Source: Federal Deposit Insurance Corporation (FDIC) list of Minority Depository Institutions. Q1 2019.

The US government certifies banks that contribute to the advancement of racial equity both through their ownership and governance structure (banks majority owned and/or governed by people of color) and through their part in serving communities of color.

None of these banks are larger than $50 billion in total assets, and the majority have less than $500M.

For banks focused on financing poverty alleviation, women’s equity, and sustainability, the pattern holds.

Banks focused on financing areas of impact, grouped by bank size. Chart shows the percentage of banks in each asset class.

 

Data source: The Office of the Comptroller of the Currency (OCC) list of women-owned banks; the Global Alliance for Banking on Values list of member banks; the certified B-Corporation directory; the US Department of Treasury list of Community Development Financial Institutions (CDFI). Q1 2019.

Banks certified for their sustainability financing focus are likely to have somewhere between $1 and $10 billion in assets.

All banks in the US certified for their roles in funding poverty alleviation (certified Community Development banks) have less than $10 billion in assets.

Most banks owned by women have less than $250 million in total assets.

To sum it up: Banks that are smaller in size seem to have lending and governance structures that enable them to focus on funding important communities and causes that may otherwise be overlooked by the largest banks as a priority line of business.

If you want your money to finance communities and issues like sustainability and poverty alleviation, the smaller banks are more likely to direct more of your money toward these efforts.

See how your dollars in different banks stack up

*For this analysis, Mighty defined dollars invested into communities as dollars in: small and large business loans, small and large farm loans, household loans (including automobile loans, student loans, and other consumer loans), construction loans, housing loans, and public works loans and securities.


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